Designing Organisational

Structure
CHAPTER 10
 Elements of organisational design
• Organisational structure refers to the formal arrangement of jobs in an organisation
• The organisational chart is the visual representation of an organisation's structure
• Organisational design refers to creating or changing an organisation's structure, a process that
involves decisions about 6 key elements
o Specialisation
o Departmentalisation
o Chain of command
o Span of control
o Centralisation
o Formalisation
 Purposes of organising
• Divides work into specific jobs
• Coordinates diverse tasks
• Assigns responsibilities associated with individual jobs
• Establishes formal lines of authority
• Establishes relationships among individuals and groups
• Allocates and deploys organisational resources
 Work specialisation
• Work specialisation refers to dividing activities into separate job tasks
• The essence of it is to divide a job into several steps, each completed by a separate individual
• Specialisation is a means of making the most efficient use of employee skills and improving them
through repetition
• Less time is spent changing tasks, putting away tools from a prior step and getting ready for
another
• If all workers were engaged in all steps of e.g. a manufacturing process all workers would need
the skills necessary to perform both the most and the least demanding jobs
• Specialisation can generate higher productivity but at some point, the human diseconomies from
division of labor (e.g. boredom) exceed the economic advantages
• Today, most managers continue to see work specialisation as important
Work specialisation
 Departmentalisation
• Departmentalisation refers to how jobs are put in groups
• Common activities need to be grouped together so work gets done in a coordinated way
• 5 common forms of departmentalisation
o Functional
o Geographical
o Product
o Process
o Customer
• Most large organisations use these types of departmentalisation
 Functional departmentalisation

• Efficiency from putting together similar specialties and people with common skills, knowledge and
orientations
• In-depth specialisation
• Coordination within functional area
• Poor communication across different functional areas
• Limited view of organisational goals
 Geographical departmentalisation

• More effective and efficient handling of specific regional issues

• Serves needs of unique geographic markets better
• Duplication of functions
• Isolation from other organisational areas might be faced
 Product departmentalisation

Allows specialisation in particular products and services

Managers can become experts in their industry
Duplication of functions
Limited view of organisational goals
 Process departmentalisation

More efficient flow of work activities

Can only be used with certain types of products
 Customer departmentalisation

Customers’ needs and problems can be met by specialists

Duplication of functions
Limited view of organisational goals
 Chain of command

• Chain of command is the line of authority extending from upper organisational

levels to lower levels that clarifies who reports to whom
• Authority refers to rights inherent in a managerial position to tell people what to
do and expect them to do it
• Line authority entitles a manager to direct the work of an employee
• Staff authority refers to positions created to support those holding line authority
• Unity of command is the management principle that each person should report
to only 1 manager
• Without unity of command, conflicting demands from multiple bosses can occur
 Chain of command

• These elements are far less important today

• Information systems allow employees to access information that used
to be available only to managers in a matter of a few seconds
• It also means that employees can communicate with anyone else in
the organisation without going through the chain
• In addition, many employees find themselves reporting to more than
1 boss
 Span of control

• Span of control is the number of employees a manager can efficiently

and effectively manage
• All other things being equal, the larger the span the more efficient the
organisation
• Obviously, wider spans are more efficient in terms of cost
• However, wider spans may reduce effectiveness if employee
performance worsens because managers no longer have the time to
lead effectively
 Span of control
• Many factors influence the number of employees a manager can efficiently and
effectively manage
• These factors include abilities of the manager and employees as well as
characteristics of the work
• In recent years, the trend has been toward larger spans of control
• These are consistent with managers’ efforts to speed up decision making,
increase flexibility, empower employees and reduce costs
• Managers can handle a wider span when employees have coworkers to help
• New technologies are also allowing organisations to widen spans by allowing
managers to interact with and monitor a larger number of employees
 Centralisation
• Centralisation is the degree to which decision-making is concentrated in
upper levels of the organisation
• As organisations have become more responsive to environmental factors,
there’s been a distinct shift toward decentralised decision making
• This trend – employee empowerment – gives employees more authority to
make decisions
• Empowering employees has a positive impact
• In large companies especially, lower-level managers are “closer to the
action” and typically have more detailed knowledge about problems and
how best to solve them
 Factors that affect an organisation’s use of
centralisation
More centralisation More decentralisation
Environment is stable Environment is complex and uncertain
Lower-level managers are not very capable or Lower-level managers are capable and experienced at
experienced at making decisions making decisions
Lower-level managers do not want a say in decisions Lower-level managers want a voice in decisions
Decisions are relatively minor Decisions are significant
Organisation is facing a crisis or risk of failure Culture is open to allowing managers a say in what
happens
Company is small Company is geographically dispersed
Effective implementation of strategies depends on Effective implementation of strategies depends on
managers retaining say over what happens managers having flexibility
 Formalisation

• Formalisation refers to how standardised an organisation's jobs are and the

extent to which employee behaviour is guided by rules and procedures
• In highly formalised organisations, there are explicit job descriptions, numerous
rules and clearly defined work procedures
• Employees are given little discretion over what’s done, when and how
• Although some formalisation is necessary for consistency and control, many
organisations today rely less on strict rules
• But high formalisation doesn’t work very effectively in times of rapid change
• And today’s workplace increasingly requires coping with a changing environment
Mechanistic and organic structures
• Basic organisational design revolves around 2 organisational forms
• The mechanistic organisation is a design that’s rigid and tightly controlled
• It was the natural result of combining the 6 elements of structure
• Jobs were simple, routine and standardised
• There was a formal hierarchy of authority, with each person supervised by 1
superior
• Keeping the span of control small at increasingly higher levels created tall,
impersonal organisational structures
• As the distance between the top and bottom expanded, top management would
increasingly impose rules and regulations
• Further specialisation through departmentalisation increased impersonality and
the need for multiple layers of management to coordinate
Mechanistic and organic structures
• The organic organisation is highly flexible with low formalisation
• This loose structure allows an organisation to change rapidly if
needed
• There is free flow of information
• The organic organisation is low in centralisation so that the
professional can respond quickly to problems
• Organic structures have specialisation but jobs are not standardised
• There are cross-functional and cross-hierarchical teams with wide
spans of control
 Contingency factors affecting structural
choice: strategy
• An organisation’s structure should facilitate goal achievement
• Certain structural designs work best with different organisational
strategies
• The flexibility and free-flowing information of an organic structure
work well when an organisation is pursuing innovation
• The mechanistic organisation with its stability and tight control works
best for businesses wanting high efficiency
Contingency factors affecting structural
choice: size
• Large organisations – typically considered to be those with more than
2000 employees – tend to have more specialisation,
departmentalisation, centralisation, and rules and regulations
• However, once an organisation grows past a certain size its size has
less influence on its structure
• Why? Essentially, once there are around 2000 employees the
organisation is already fairly mechanistic. Adding another 500
employees won’t impact the structure much
 Contingency factors affecting structural
choice: technology
• Organisations use technology to convert inputs into outputs and adapt their structures to
technologies
• The more routine a technology, the more mechanistic the organisation’s structure can be
• Unit production is the production of items in units or small batches
• Mass production is production of items in large batches
• Process production is production of items in continuous processes
• Unit and process production have low formalisation while mass production has high formalisation
• For unit or process production, the organic structure is more effective while for mass production,
the mechanistic structure is better
Contingency factors affecting structural
choice: environmental uncertainty
• Managers try to minimise environmental uncertainty by adjusting their organisation’s structure
• In stable and simple environments, mechanistic designs can be more effective
• In dynamic and complex environments, an organisation needs flexibility of an organic design
• Global competition, accelerated product innovation by competitors and increased demands from
customers for high quality and more efficiency are examples of dynamic environmental forces in
today’s world
• This is why we’re seeing organisations become more organic
 Traditional organisational design options
• These structures tend to be more mechanistic
• A simple structure is an organisational design with little departmentalisation, wide spans of control,
centralised authority and little formalisation
• Most companies start as entrepreneurial ventures using a simple structure
• However, most don’t remain as simple structures and the organisation becomes increasingly
bureaucratic
• At this point, managers might choose a functional or divisional structure
• A functional structure groups similar occupational specialties together
• The divisional structure is made up of separate business units or divisions
• In this, each division has limited autonomy with a manager who is responsible for
performance
• In divisional structures, the parent corporation typically acts as an external
overseer to coordinate and control the various divisions and often provides
support services e.g. legal
Traditional organisational design options
Structure Strengths Weaknesses
Not appropriate as
Simple Fast
organisation grows
Reliance on 1 person is
Flexible
risky
Inexpensive
Has clear accountability
Pursuit of functional
goals can cause
Cost advantages from
Functional managers to lose sight of
specialisation
what’s best for the
overall organisation
Duplication of resources
Divisional Focuses on results and activities reduces
efficiency
 Organising for flexibility in the 21st century:
team structures
• Many organisations are finding that traditional organisational designs often aren’t appropriate for
today’s increasingly dynamic and complex environment
• These organisations seek to be lean, flexible and innovative – that is, to be more organic
• So managers are finding creative ways to organise work
• In a team structure, the entire organisation is made up of work teams
• Employee teams design and do work in the way they think is best but the teams are held
responsible for results in their respective areas
• In large organisations, the team structure complements what is typically a functional or divisional
structure
• This means these organisations have efficiency of a bureaucracy with flexibility of a team
Organising for flexibility in the 21st century:
matrix and project structures
• The matrix structure assigns specialists from different functional departments to work on projects
led by a project manager

• One unique aspect of this design is that it creates a dual chain of command because employees
have 2 bosses, their functional area managers and their project managers (who share authority)

• This design “violates” the unity-of-command principle but works effectively if both managers
communicate regularly, coordinate work demands and resolve conflicts together
Organising for flexibility in the 21st century:
matrix and project structures
Organising for flexibility in the 21st century:
matrix and project structures
• In a project structure, employees continuously work on projects
• Unlike the matrix structure, this has no formal departments where employees return at the
completion of a project
• Instead, employees take their specific abilities and experiences to other projects
• Also, all work in project structures is performed by teams of employees
• Project structures tend to be more flexible organisational designs, without the
departmentalisation or rigid hierarchy that can slow down taking action
• Managers serve as facilitators and mentors
• They eliminate or minimise obstacles and ensure that teams have the resources they need to
effectively and efficiently complete work
Organising for flexibility in the 21st century:
the virtual organisation
• Why own when you can rent?
• This question captures the essence of the virtual organisation
• A virtual (network/modular) organisation consists of a small core of full-time employees
and outsources its major business functions
• It is highly centralised with little or no departmentalisation
• The major advantage is flexibility that allows individuals with an innovative idea and little
money to successfully compete against more established organisations
• Thia structure also saves a great deal of money by eliminating permanent offices and
hierarchical roles for outsourced functions
• But virtual organisations are in a state of perpetual flux and reorganisation
• This means roles, goals and responsibilities are often unclear, setting the stage for
increased political maneuvering for access to opportunities
Offering flexibility for today’s workforce:
remote work
• Today, companies are offering broader remote work options
• Managers that encourage flexibility can see returns in productivity
• To reap these benefits, managers need to understand remote and flexible work options
• Further, many organisations are looking for new ways to maximise productivity through alternate
uses of staffing such as a reduced workweek or contingent workers
• Telecommuting, an early version of remote work, allowed employees to work at home and be
linked to the workplace by computer
• For employees it meant no commutes, no colleague interruptions and an opportunity to better
balance work and personal lives
• Telecommuting work is typically asynchronous and the employee works independently
• In some cases employees can work from anywhere but often with the expectation of engaging
synchronously through virtual meetings and using a variety of technical platforms to interact
Offering flexibility for today’s workforce:
remote work
• Remote work arrangements are attractive to both employees and employers
• Employees value the flexibility remote work options offer and research suggests that they are
more productive
• Further, employers can save nearly $10 000 per employee on office-related expenses
• Many companies have embraced a hybrid work option, requiring remote workers to come into
the office a few days each week or month
• However, many managers have reported that hybrid work arrangements are difficult to manage
• This is often due to policies and practices that are not well thought out and managers that are not
trained in managing remote workers
Offering flexibility for today’s workforce:
flexible schedules
• First, workers must be satisfied with their schedule if they are going to be productive workers
• Further, predictability and control over their schedule matters
• In a compressed workweek, employees work longer hours per day but fewer days per week
• Advocates of the compressed workweek propose that it allows workers extra time to pursue
leisure activities and handle personal responsibilities while cutting commuting time and costs
• For employees working in the office, they tend to arrive and leave outside rush hour times and
commuting is reduced to 4 times a week
• For employers, it can result in higher worker satisfaction, fewer absences and less turnover
• Even more attractive to employees is a reduced workweek where workers work 4 days a week but
only 8 hours per day, dropping their standard workweek hours from 40 to 32 without a cut in pay
Offering flexibility for today’s workforce:
flexible schedules
• With a reduced workweek, employees have reported that they are less stressed, less burned out
and more satisfied with their jobs
• Companies have also had positive results such as higher profitability and lower employee
turnover
• Although some workers cannot choose when they work, many workers don’t necessarily need to
work at specific times
• Further, some workers find that they are more productive at specific times of the day
• Flextime (short for flexible work time) is a scheduling system that requires employees to work a
specific number of hours per week but allows them to vary their hours within limits
• In a typical flextime program, each day consists of a common core where everyone is working to
ensure employees are able to interact regularly and schedule meetings
Offering flexibility for today’s workforce:
flexible schedules
• Job sharing is the practice of having 2 or more people split a full-time
job
• For employers, the appeal of offering job sharing is that it provides
the opportunity to get 2-for-the-price-of-1, gaining wider skills and
experience than might be available in a single person
• It also allows firms to attract skilled workers who might not be
available on a full-time basis
• For employees, job sharing can increase motivation and satisfaction if
they can work when they wouldn’t normally be able to do so
Offering flexibility for today’s workforce: the
contingent workforce
• Contingent workers are outsourced and non-permanent workers who are hired on a
temporary basis
• As full-time jobs are eliminated to increase organisational flexibility and decrease costs,
managers have increasingly relied on a contingent workforce to fill in as needed
• Leaders need to identify what options are both desirable and feasible for their business
and employees
• They also need to develop skills to manage in an alternate work environment
• Many workers are not able to work remotely due to the nature of their job
• However, managers can look for opportunities to improve the quality of life for these
workers
• Increasing the predictability and control over workers’ schedules should help